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Differentiaitng between market structures - Essay Example

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Output choices of firms were limited due to market demand and production function. However, not all firms respond to this limitation in the same approach. The number and size of the firms in a market or the market structure have to be taken into consideration as they may bring effect to the production and pricing decisions…
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Differentiaitng between market structures
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Download file to see previous pages An industry with a structure of perfect competition may be seen with a large number firms competing for consumers purchase, monopolistic competition has many while few firms are present in an oligopoly and monopoly has only one. Fruit and vegetable vendors in a marketplace are examples of perfect competition, home products producers like Unilever, Colgate-Palmolive and Procter and Gamble are under monopolistic competition, credit card companies such as Visa, MasterCard and American Express are oligopolists and Microsoft has monopolized the operating system for computers. The number of firms in an industry is dependent to the level or degree of barriers present in the market. A high level of barrier discourages if not totally eliminate new firms from joining the industry. This is true for oligopoly and monopoly. Barriers like high capital requirements, established loyalty from customers and collaboration or cartel may deter entrance of new or smaller firms. On the other hand, a lower degree to the point of absence of barrier may encourage the new entrants. A perfectly competitive market has no barrier at all, prices are set by the market itself and so the competition, price and non-price, is very healthy. A low level is observed in a monopolistic competition causing new firms to be attracted in joining the industry. The level of market power that a firm possesses reflects its control over price. However, this power depends on factors like the numbers of producers, the size of each firm, barriers to entry and the availability of substitute goods. With the existence of one or few producers, the power to control the market is automatically granted. The size of the firm relative to the size of the product market can affect its market power. A big firm could possess a small power if it is in a large industry but a small one could hold a lot of power if it is a small market. The ease or difficulty of entry into an industry limits the ability of a powerful firm to dictate prices and flows of products (Schiller, 2006). If new firms will be willing to enter the market, share in the spoils and succeeded, the market power will also be distributed among the firms in the said market, otherwise the power will remain concentrated in the big players. With the fourth determinant, if there will be substitute goods that customers could avail of, prices will not be set at very high level and so they can decide to switch or choose the closest substitutes. The oligopoly and monopoly both hold substantial power to control the market, from the output production to dictation of prices. Monopolistic competition may hold some but the firms under perfect competition holds no power at all. As in other industries, the market structure of the computer industry has evolved over time. It was never a monopoly, nor was it ever a perfect competition (Schiller, 2006). It was more of a monopolistic competition. This market structure is characterized by several sellers producing the same products that are slightly differentiated. Apple Inc. was one of the first companies who dominated this industry. Its success and high profits attracted other producers of microcomputers to imitate them. With the entry of over 250 firms between 1976 and 1983, the industry became more competitive but not perfectly competitive. Prices were pushed downward and products were improved because of the increased ...Download file to see next pagesRead More
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